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Fragmentation Across Cones

Author

Listed:
  • Deardorff, A.V.

Abstract

his paper examines the effects of fragmentation across cones of diversification in the Heckscher-Ohlin model of international trade. Fragmentation is defined as the splitting of production processes into parts that can be done in different countries. Such fragmentation may occur in a world of factor price equalization (FPE) only if it is costless, and even then it is uninteresting. It becomes more important in a world without FPE, where countries operate in different diversification cones. In that case even costly fragmentation (which uses more resources than the original) may be able to produce a good at a lower cost than the original unfragmented technology, if it can take advantage of different factor prices in different countries. The paper shows when this will be the case, then goes on to examine the effects of fragmentation on factor prices.

Suggested Citation

  • Deardorff, A.V., 1998. "Fragmentation Across Cones," Working Papers 427, Research Seminar in International Economics, University of Michigan.
    • Handle: RePEc:mie:wpaper:427
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    Keywords

    INTERNATIONAL TRADE;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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